Repossession Laws for Texas Car Loans

The worst thing a person in danger of having their car repossessed can do is fail to communicate with the lienholder, according to Edna Hild, veteran used-car dealer of 38 years and owner of Texas Auto Mart in San Antonio, Texas. Most dealers and bankers are willing to work with you, Hild adds, because it is more expensive for them to repossess your car and dispose of it again, especially if you haven't maintained it.

Lienholder's Right to Reposses and Dispose

Texas automobile lienholders have the right to repossess a vehicle any time the borrower becomes delinquent as long as they "proceed without breach of the peace," according to Texas Business and Commerce Code, Uniform Commericial Code, Chapter 9, Section 609. Hild explains "breach of peace" as being without violence. For example, the creditor can't break into your garage and take the car or harass you at work. However, creditors are not required to notify you before they repossess your car. The lender also has the right, after taking possession, to sell the vehicle as long as he gives you notice 10 days before sale, and as long as the sale is "performed in a commercially reasonable manner," according to the Uniform Commercial Code, Chapter 2, Sales.

Insurance Rules

Texas Finance Code, Chapter 348, Motor Vehicle Installment Sales states that a creditor can require an automobile buyer to "insure the motor vehicle purchased under a retail installment transaction and accessories and related goods subject to the holder's security interest." If the buyer fails to provide proof of insurance, the lienholder can purchase insurance that is more than the required coverage and add the premium to the installment contract. The creditor may also substitute limited coverage. However, Hild advises against limited coverage because it only covers the purchaser. If you loan someone else your car and he has an accident, the insurance company will refuse to pay, she adds. Don't let insurance lapse or the lender may have the right to repossess.

Repo and Resale Fees

Under Texas law, a lender who repossesses your car has the right to charge you a repo fee, ranging from $200 to $500, according to Hild. You can opt instead to sell your car to a third party provided you don't owe more than it's worth, a term known as "upside-down on your payments, she adds. If the car is resold, you may get some money back after the dealer recoups any costs associated with the sale or the one-time delinquent fee. If the dealer sells the car for less than you owe, you owe them a deficiency fee for the difference.

Bankruptcy Protection

Filing bankruptcy may initially protect you from repossession, according to the Texas Young Lawyers Association. Under Texas Bankruptcy Law, an individual has the right to keep their homestead and $30,000 worth of certain personal items, including furniture, food and an automobile, $60,000 for families. However, bankruptcy does not cancel your obligation to continue making your car payments. Failure to make payments after the bankruptcy has been executed can result in repossession.